Starting a business with a friend?
Discussion
Currently setting up a business with a very good friend of mine, there's not much money at stake however I have a few questions
1. Do we open a normal joint bank account?
2. Do we open a business bank account?
3. Do we need to set up a limited company?
My only concern is if we open a normal joint bank account and it doesn't work out, can we close it? Will it affect our credit rating?
If we open a limited company then surely we will need a business bank account and with the limited company does that mean we have to pay a chartered accountant every year to do the accounts?
Any advice would be much appreciated
1. Do we open a normal joint bank account?
2. Do we open a business bank account?
3. Do we need to set up a limited company?
My only concern is if we open a normal joint bank account and it doesn't work out, can we close it? Will it affect our credit rating?
If we open a limited company then surely we will need a business bank account and with the limited company does that mean we have to pay a chartered accountant every year to do the accounts?
Any advice would be much appreciated
A normal joint bank account would be useless - in as much as people paying you would have to pay ‘tom bloggs and tim tott’.
So you’re left with a business partnership account / like a sole trader acc. But there’s two of you. So a business account that would officially be: ‘tom bloggs and tim tott trading as acme printing’ ... and people would be able to make payments to ‘acme printing’.
Then the limited co bank account. So you’d first set up a Ltd co online and make each of you 50 / 50 shareholders... and then go to the bank and set up an account in that limited co name: ‘acme printing limited’.
I’ve had every incarnation of bank account; and partner business bank account is fine to be honest; and will save you the hassle of limited company statements to companies house; on top of the hmrc stuff. The limited co is the more official route.
There’s also; limited liability partnerships: LLP’s... but again; that’s a company structure thing and less to do with your actual bank account.
You could go the partnership route at first - and upgrade to a limited co and related limited co bank account further down the line if need be.
The bank will probably want to see a partnership agreement. You can get templates online; and the agreement is simply setting out your roles and what each of you will be entitled to; in control of. It’s probably a good thing to have anyway!
With that self made partnership agreement and one headed paper (just do something in Word if need be), most banks will give you your business bank account.
So you’re left with a business partnership account / like a sole trader acc. But there’s two of you. So a business account that would officially be: ‘tom bloggs and tim tott trading as acme printing’ ... and people would be able to make payments to ‘acme printing’.
Then the limited co bank account. So you’d first set up a Ltd co online and make each of you 50 / 50 shareholders... and then go to the bank and set up an account in that limited co name: ‘acme printing limited’.
I’ve had every incarnation of bank account; and partner business bank account is fine to be honest; and will save you the hassle of limited company statements to companies house; on top of the hmrc stuff. The limited co is the more official route.
There’s also; limited liability partnerships: LLP’s... but again; that’s a company structure thing and less to do with your actual bank account.
You could go the partnership route at first - and upgrade to a limited co and related limited co bank account further down the line if need be.
The bank will probably want to see a partnership agreement. You can get templates online; and the agreement is simply setting out your roles and what each of you will be entitled to; in control of. It’s probably a good thing to have anyway!
With that self made partnership agreement and one headed paper (just do something in Word if need be), most banks will give you your business bank account.
^^ some good advice there ^^
however, I would tweak it a bit, 30 years experience of running businesses / advising businesses / sorting out the mess some get into amd one of my top tips would be never go 50 / 50 in terms of ownership, you are totally stuffed if you disagree on anyhing and it can kill a business, either have one as the majority shareholder if they are doing more / investing more (time or money), or the alternative is to have an arrangement along the lines of:
- c. 49 / 49 between the two main protagonists, then
- give the remaining 1-2% to someone you both respect who can add value in the event of a stalemate, and who will make a decision based on what the company needs, not based on personal emotions...
- if you prefer set all up as different share classes to allow different dividends etc, but make the voting rights the same...
however, I would tweak it a bit, 30 years experience of running businesses / advising businesses / sorting out the mess some get into amd one of my top tips would be never go 50 / 50 in terms of ownership, you are totally stuffed if you disagree on anyhing and it can kill a business, either have one as the majority shareholder if they are doing more / investing more (time or money), or the alternative is to have an arrangement along the lines of:
- c. 49 / 49 between the two main protagonists, then
- give the remaining 1-2% to someone you both respect who can add value in the event of a stalemate, and who will make a decision based on what the company needs, not based on personal emotions...
- if you prefer set all up as different share classes to allow different dividends etc, but make the voting rights the same...
LDN said:
So you’re left with a business partnership account / like a sole trader acc. But there’s two of you. So a business account that would officially be: ‘tom bloggs and tim tott trading as acme printing’ ... and people would be able to make payments to ‘acme printing’.
The bank will probably want to see a partnership agreement. You can get templates online; and the agreement is simply setting out your roles and what each of you will be entitled to; in control of. It’s probably a good thing to have anyway!
With that self made partnership agreement and one headed paper (just do something in Word if need be), most banks will give you your business bank account.
Partnerships can and do trade in a business name only. There is no need to be "tom bloggs and tim tott trading as acme printing".The bank will probably want to see a partnership agreement. You can get templates online; and the agreement is simply setting out your roles and what each of you will be entitled to; in control of. It’s probably a good thing to have anyway!
With that self made partnership agreement and one headed paper (just do something in Word if need be), most banks will give you your business bank account.
https://www.gov.uk/set-up-business-partnership
An associated business bank account should be opened in the partnership's name ... in the example "Acme Printing"
Our bank (Santander) did not want to see a partnership agreement, in fact they didn't even ask if one existed. This may have been as we had no need for overdraft facilities etc.
The key point that must be decided from the off is the structure of the business i.e. are you going to set up a business partnership or are you going top set up a limited company.
Once you have made that decision, only then can you start looking at bank accounts, the various tax registrations etc.
Once you have made that decision, only then can you start looking at bank accounts, the various tax registrations etc.
Flibbage
There is some great advice above....
I would suggest you concentrate on a proper partnership agreement between the two of you, this will cover the shareholding, I agree on the 49% advice. Inevitably you will at times disagree and you need a mechanism clearly laid out to deal with that.
The second ‘warning’ is going into business with friends...tread carefully.. ensure you have complimentary skill sets and you have seen first hand whether they are effective in business...
Just google went into business with a friend...and you’ll see what can happen.
Finally I would always go down the limited company route, it’s not that onerous, accountants keep you compliant and you can concentrate on growing the business without worrying about its status and moving up through sole trader, llp etc...though I acknowledge there are lots of circumstances for alternatives.
Then worry about bank accounts...which are easier to set up as a Ltd...(I think) ...and it keeps everything above board and transparent..especially if you link the account to an online accounts package...which you will require anyway.
There is some great advice above....
I would suggest you concentrate on a proper partnership agreement between the two of you, this will cover the shareholding, I agree on the 49% advice. Inevitably you will at times disagree and you need a mechanism clearly laid out to deal with that.
The second ‘warning’ is going into business with friends...tread carefully.. ensure you have complimentary skill sets and you have seen first hand whether they are effective in business...
Just google went into business with a friend...and you’ll see what can happen.
Finally I would always go down the limited company route, it’s not that onerous, accountants keep you compliant and you can concentrate on growing the business without worrying about its status and moving up through sole trader, llp etc...though I acknowledge there are lots of circumstances for alternatives.
Then worry about bank accounts...which are easier to set up as a Ltd...(I think) ...and it keeps everything above board and transparent..especially if you link the account to an online accounts package...which you will require anyway.
Thanks for the advice, just to clarify the business will be 50:50 we're putting in equal effort and money. We both have full time jobs so this is a side thing.
We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
flibbage0 said:
Thanks for the advice, just to clarify the business will be 50:50 we're putting in equal effort and money. We both have full time jobs so this is a side thing.
We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
as are many businesses that start like that - and then change...We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
seriously - 50:50 is a really bad idea - if you want to learn about businesses, this is one of the biggest learning points - I have dealt with more businesses in trouble due to this issue than almost anything else - when 2 people have 50% each and are blocking each other from selling / changing the business / etc. - from small to medium businesses - not good...
flibbage0 said:
Thanks for the advice, just to clarify the business will be 50:50 we're putting in equal effort and money. We both have full time jobs so this is a side thing.
We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
You absolutely need a Partners Agreement, Heads of Terms or whatever you want to call it...basically, a document that sets out in writing every eventuality you can think of that both of you agree on.We're also only investing in <£150, so not that much at risk, just concerned about messing up the admin side
Again we're not expecting big numbers this is more of a learning experience as we've never set up a business before so we thought of starting with something small and learn the fundamentals.
50:50 is fine but what if your mate turns out to be a slacker, or gets ill and unable to work for months? What happens when someone comes along and wants to invest but wants a slice of the pie? Who does what in the business?
You may think you don't need this but the most common thread topic in this section are people who went into business arrangements in all good faith with people they thought they could trust but something went wrong. Having a written agreement will not stop those things happening but will make life a lot easier when they do.
£150 may not be a lot but you never know, that could end up being £150k, £1.5m....£15m....
Creating that document is one of the most horrid things you can do in the process of setting up a business. You effectively have to assume that your mate is at some point going to rip you off. But it really is important. I speak from experience!
flibbage0 said:
Eric Mc said:
And still no indication as to the business structure - partnership or limited company?
We don't know, what are the advantages and disadvantages of both?What level of income do you expect to generate in the first 12 months of operation?
Size matters.
1) don't do a partnership. It will almost certainly end badly with one of you severaly out of pocket.
2) don't work with friends or family. Ever sold a car to friends or family that went wrong 3 years later? Exactly. Say no more.
3) turnover of £10k? In the nicest possible way don't waste your time and efforts. Think big or not at all.
4) tell your friend to put in £300 and do it by himself, you do the same, shake hands say may the best man win and see who makes the most profit In 12months.
2) don't work with friends or family. Ever sold a car to friends or family that went wrong 3 years later? Exactly. Say no more.
3) turnover of £10k? In the nicest possible way don't waste your time and efforts. Think big or not at all.
4) tell your friend to put in £300 and do it by himself, you do the same, shake hands say may the best man win and see who makes the most profit In 12months.
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